Someone who is trying to start a new business often wonders, At what point will I break even?

A break even point (BEP) is the point where costs are exactly equal to sales/revenue. At this point, the business makes no profit and yet doesnt suffer from loss either. The break even point indicates the level of sales needed to just to cover costs. Sales above this point will result in profit, vice versa. To calculate the break even point we basically need to consider several factors, which are:

Average per unit sales price, Average per unit variable cost, and Average annual fixed cost

Fixed costs are constant expenses that dont change no matter how many unit of products are produced. While variable costs will increase as the unit of production goes up. This is why variable costs are often stated on a per unit basis.

The break even analysis, of course, is oversimplified. In most cases, it is almost impossible to determine the exact break even point due to the companys many customers, the companys many products, and the interaction between price and sales. These many factors will complicate the break even analysis. But it is still a useful tool that could provide some insight as to how profit and loss change as sales level decrease or increase. Calculating BEP can keep you very occupied if done manually. You can use the following Microsoft Excel template to make your job easier. Download Microsoft Excel Breakeven Point Template (11 kb) You dont need to go to business school to understand when a company will breakeven. In fact, many school activities for children are focused around earning and keeping track of money. If you do need a business refresher course, there are manyonline learning resources that could be helpful.

/////////////
The Hidden Secrets to Profitability That Most Business Consultants Don`t Want You To Know Are Just A Click Away.

If You Want To Grow Your Business Even Faster, This Little App Is Like Helium For A Balloon. We frequently need to price our products to sell well. Break-Even Analysis is one way to be sure that you are on the right track before you make a costly mistake. B/E Analysis helps you to predict the sales volume required to reach your break-even point where your total cost equals your total revenue. The App goes one step further and suggests ways to help you increase your profits using your own input as a guide. In 20 Seconds or Less You Can Now Get A Break-Even Analysis Done On Your iPhone! Yes, Any Product, Any Service and Any Business - Even iPhone Development Projects Can Benefit From This App. All you need to start are 4 basic numerical inputs and the desire to increase your bottom line profit.

WHO IS THIS APP FOR: - Small & Medium Sized Business Owners and Managers - Corporate Managers That Want A Quick Tool To Guide Them To Higher Profits - Shareholders, Stakeholders & Entrepreneurs "I used it and decided to go with a 4% price increase. Customers didnt even notice, my sales numbers stayed the same and it looks like this thing helped me to double my profits. I am blown away

WHAT WILL THIS APP DO FOR YOU: Break-Even Analysis is a report NOT normally produced by your accountant, nor is it automatically generated by most accounting software. Recent massive layoffs at large corporations are the direct result of an attempt to lower the break-even point of the target business to stay competitive, remain in business and try to increase profits at the same time. If you run a business or a business division and you like to put more money into your pocket, knowing the Break-Even Point for any given product (or project) immediately tells you the lowest amount of business activity necessary to prevent losses. Armed with this information you can tweak your business to get more out of it. Do you know your business`s Break-Even Point? What about the B/E Point for each of the products you sell?

IS IT COMPLICATED:

We spent months breaking the process down into its core components and then building it back up again as an easy to use business tool. A group of young entrepreneurs gave us feedback after 60 days of using the tool before we went back to our developers and improved it all over again. Now it`s your turn, take the App for a spin, use it in your business and let us know what you have achieved. All you need to get going are four things: - The cost to produce one unit of your product - Your Fixed Costs like rent, utilities and salaries - Your Sales Forecast for a given period and - Your Selling Price for the product Here`s what a few of our Customers had to say about Break-Even Analysis. "For an iPhone application, this thing is pricey but if you`re in business, you`ll probably figure out how to earn more money by using it just once." "Breakeven is a no-brainer. Used properly, it`ll help your business. Thanks again for the free bonus" "Knowing the elements of break-even analysis focused me on managing the costs that maximize our bottom line. We definitely make more money today." This little App works beautifully with the Apple iTunes Store rev share model. I love what you did with Sales Calc and Break-Even is even better - keep it coming

WHAT IS INCLUDED: If you enter the 4 input variables, and hit the calculate button, your results are displayed immediately for you in the lower half of the screen. If you were to tap on the Profit or Loss text, a few helpful suggestions are displayed all designed to improve your bottom line. To view your B/E point on a chart, be sure you have internet access and then turn the iPhone sideways. ////////////

Break-even (or break even) is a point where any difference between plus or minus or equivalent changes side. [edit]In

economics

Main article: Break-even (economics) A technique for which identifying the point where the total revenue is just sufficient to cover the total cost. The formula for break even point is fixed costs/fixed expense over contribution per unit. Ineconomics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return. break even point) [edit]In
[1]

other fields

In nuclear fusion research, the term break-even refers to a fusion energy gain factor equal to unity, this is also known as the Lawson criterion. The notion can also be found in more general phenomena, such as percolation, and is rather similar to the critical threshold. In energy, the break-even point is the point where usable energy gotten from a process exceeds the input energy. In computer science, the (less usual) term refers to a point in the life cycle of a programming language where the language can be used to code its own compiler or interpreter. This is also called self-hosting.

In music and media it is a song by the band The Script. In medicine, it is a postulated state when the advances of medicine permit every year an increase of one year or more of the life expectancy of the living, therefore leading to medical immortality (barring accidental death)
[2]

///////////

Break-even (economics)
From Wikipedia, the free encyclopedia

This article is about Break-even (economics). For other uses, see Break-even (disambiguation).

The Break-Even Point is where Total Costsequal Sales. In the Cost-Volume-Profit Analysismodel, Total Costs are linear in volume.

In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return.[1] For example, if a business sells fewer than 200 tables each month, it will make a loss, if it sells more, it will be a profit. With this information, the business managers will then need to see if they expect to be able to make and sell 200 tables per month. If they think they cannot sell that many, to ensure viability they could: 1. Try to reduce the fixed costs (by renegotiating rent for example, or keeping better control of telephone bills or other costs) 2. Try to reduce variable costs (the price it pays for the tables by finding a new supplier)

3. Increase the selling price of their tables. Any of these would reduce the break even point. In other words, the business would not need to sell so many tables to make sure it could pay its fixed costs.
Contents
[hide]

1 Computation 2 Margin of Safety 3 Break Even Analysis

3.1 Application

4 Limitations 5 Notes 6 See also 7 References 8 External links 9 Further reading

[edit]Computation

In the linear Cost-Volume-Profit Analysis model,[2] the break-even point (in terms of Unit Sales (X)) can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as:

where:

TFC is Total Fixed Costs, P is Unit Sale Price, and V is Unit Variable Cost.

The Break-Even Point can alternatively be computed as the point where Contribution equalsFixed Costs.

The quantity

is of interest in its own right, and is called the Unit

Contribution Margin (C): it is the marginal profit per unit, or alternatively the portion of each sale that contributes to Fixed Costs. Thus the break-even point can be more simply computed as the point where Total Contribution = Total Fixed Cost:

In currency units (sales proceeds) to reach break-even, one can use the above calculation and multiply by Price, or equivalently use the Contribution Margin Ratio (Unit Contribution Margin over Price) to compute it as: R=C, Where R is revenue generated, C is cost incurred i.e. Fixed costs + Variable Costs or Q * P(Price per unit) = TFC + Q * VC(Price per unit), Q * P - Q * VC = TFC, Q * (P - VC) = TFC, or, Break Even Analysis Q = TFC/c/s ratio=Break Even
[edit]Margin

of Safety

Margin of safety represents the strength of the business. It enables a business to know what is the exact amount it has gained or lost and whether they are over or below the break even point.[3] margin of safety = (current output - breakeven output) margin of safety% = (current output - breakeven output)/current output x 100

When dealing with budgets you would instead replace "Current output" with "Budgeted output". If P/V ratio is given then profit/ PV ratio == In unit Break Even = FC / (SP VC) where FC is Fixed Cost, SP is Selling Price and VC is Variable Cost
[edit]Break

Even Analysis

By inserting different prices into the formula, you will obtain a number of break even points, one for each possible price charged. If the firm changes the selling price for its product, from $2 to $2.30, in the example above, then it would have to sell only (1000/(2.3 - 0.6))= 589 units to break even, rather than 715.

To make the results clearer, they can be graphed. To do this, you draw the total cost curve (TC in the diagram) which shows the total cost associated with each possible level of output, the fixed cost curve (FC) which shows the costs that do not vary with output level, and finally the various total revenue lines (R1, R2, and R3) which show the total amount of revenue received at each output level, given the price you will be charging. The break even points (A,B,C) are the points of intersection between the total cost curve (TC) and a total revenue curve (R1, R2, or R3). The break even quantity at each selling price can be read off the horizontal axis and the break even price at each selling price can be read off the vertical axis. The total cost, total revenue, and fixed cost curves can each be constructed with simple formulae. For example, the total revenue curve is simply the product of selling price times quantity for each output quantity. The data used in these formulae come either from accounting records or from various estimation techniques such as regression analysis.

[edit]Application

The break-even point is one of the simplest yet least used analytical tools in management. It helps to provide a dynamic view of the relationships between sales, costs and profits. A better understanding of break-even, for example, is expressing break-even sales as a percentage of actual salescan give managers a chance to understand when to expect to break even (by linking the percent to when in the week/month this percent of sales might occur). The break-even point is a special case of Target Income Sales, where Target Income is 0 (breaking even). This is very important for financial analysis.
[edit]Limitations

Break-even analysis is only a supply side (i.e. costs only) analysis, as it tells you nothing about what sales are actually likely to be for the product at these various prices.

It assumes that fixed costs (FC) are constant. Although, this is true in the short run, an increase in the scale of production is likely to cause fixed costs to rise.

It assumes average variable costs are constant per unit of output, at least in the range of likely quantities of sales. (i.e. linearity) It assumes that the quantity of goods produced is equal to the quantity of goods sold (i.e., there is no change in the quantity of goods held in inventory at the beginning of the period and the quantity of goods held in inventory at the end of the period).

In multi-product companies, it assumes that the relative proportions of each product sold and produced are constant (i.e., the sales mix is constant).

[edit]Notes

There is a myth that Black Friday is the annual break-even point in American retail sales, but in fact retailers generally break-even, and indeed profit, nearly every quarter.
[edit]See

also

cost-plus pricing pricing

production, costs, and pricing [edit]///////////////////

Break even point analysis is very important topic of cost accounting. You add more in it by writing your worthy comments below this content. Break even point analyzes which quantity or amount of sale of products will be most profitable to the business. First of all, we find break even point on graph of total sale and total cost on the different level of unit of sale and then study the cause and effect deeply if we increase sale or decrease the sale from this point and try to find important facts and information which can be used in business. It can also solve following problems Q: - 1. Why are company increasing the price of product or decreasing its cost? Ans. After find the break even point on the graph paper and calculating the quantity of sale under break even point. It is very easy for company to know the quantity of sale where total cost of company is equal to total revenue of company. But some time, company has no power to get that level of sale. At that time, company can take the decision to increase the price or decrease its fixed and variable cost for protecting business from loss. That is the reason, we are doing analysis of break even point.

Q: - 2. How will Company get new ideas relating to maximize the profit? Ans. Break even provides clear picture of cost, sales, profit and their relationship. Sometime a simple person does not understand the formula of units sold at break even point but this formula shows the clear relationship among total fixed cost, sale per unit and variable cost per unit. we show here the formula of sale unit at BEP = TFC / sale price per unit - variable cost per unit Now, accounts manager thinks like me : a) how can my sale unit will more than break even point sale unit without any loss because there is no benefit to increase sale unit at higher cost? b) This formula also provides me to reach its originality.

sales unit at BEP = Total fixed cost/ sale price per unit - variable cost per unit or X = TFC / P - V

X ( P- V ) = TFC

P X X - V x X = TFC

P X X = TFC + V X X

Total Sale = TFC + TVC

Total Sale = Total Cost

Q:- 3. How can manager achieve target income sales? Ans. With break even point analysis, manager can achieve target income sales because, if we subtract variable cost out of sale value, we can find contribution and break even point will be BEP = Total fixed cost / Contribution per unit and target income in unit will be = total fixed cost + target income / contribution per unit Q:- How to find Margin of Safety ? Ans. One of major benefit of analysis of break even point, with this, we can calculate exact amount of profit of business whether they are over or below the sale than break even point. Without finding break even point, we can not find margin of safety.

margin of safety = (current output - break even output)

margin of safety% = (current output - break even output)/current output x 10 /////////////